The Organisation of the Petroleum Exporting Countries (OPEC) power Iran wields a potent weapon ? oil ? which if fired to ward off international pressure over its nuclear programme could blast prices to record levels last seen during the 1979 Iranian Revolution.

As the United States and its European Union allies lose patience with the Islamic Republic, President Mahmoud Ahmadinejad has kept the world guessing as to whether the world?s fourth biggest crude exporter will withhold supplies.

?We have the necessary tools to defend our rights,? he told a news conference this week. ?Those who use harsh language against Iran need Iran 10 times more than we need them.? Oil markets have taken the point, with crude above $ 65 and rising and consumers on edge over lost output in Nigeria. The mere possibility of an Iranian interruption will add to tension for months to come.

Further actual disruptions would be hard, if not impossible, for the world to cover with the OPEC holding only 1.5 million barrels per day in reserve. ?Iran is in a very strong position and Ahmadinejad knows it. It?s a sellers? market,? said independent oil consultant Geoff Pyne. ?And the West doesn?t have a choice ? it needs the oil.?

The United States and EU want Iran referred to the United Nations Security Council for possible sanctions over a nuclear programme they suspect is aimed at developing weapons rather than fuel for power stations. Iran denies the charge. China, a key crude buyer from Iran and permanent member of the Security Council, has said it would prefer the case to be solved outside the world body. Iran, OPEC?s second biggest producer, has warned that world oil prices would be driven higher if the UN slaps on sanctions.

While analysts see only a remote chance of the UN imposing a blanket embargo on Iranian crude exports, they see higher odds for a defiant Tehran purposely withdrawing oil from the 85 million bpd world market. Iran, which amassed a $40 billion (23 billion pound) war chest from export revenues last year, could afford a short break in oil sales. It could copy the tactics used by neighbouring Iraq when it halted crude exports under UN sanctions to pressure chief political foes the United States and Britain.

Western wrath

?The question is whether Iran will take the initiative and cut off its oil, even for weeks or a month?? said Mustafa Alani, an analyst at Dubai-based Gulf Research Centre. ?The Iranians can play with the psychology of the market even by threatening to cut off their oil.? Some analysts insist Tehran will not unsheath the oil weapon for fear it destroys credibility with international oil firms and banks and damages trade relations with other countries.

But when it comes to Ahmadinejad, who has incurred Western wrath with his outspoken remarks against Israel, the world has come to expect the unexpected. ?The Iranians don?t follow logical rules,? said Pyne. ?Things are done for domestic consumption.? Standing up to Washington and its allies by halting oil exports may win points at home, but the oil weapon could prove a blunt instrument in the end.

?Ahmadinejad must be very careful about issuing these threats,? said Mehdi Varzi, president of Varzi Energy consultancy. ?Obviously a cut off would be serious, but not insoluble. As it proved after the US hurricanes, the world community can actually get together and put millions of barrels into the supply system.?

And the United States, the world?s biggest oil consumer, may be prepared to pay the price for disarming Iran. Under unilateral sanctions, Washington has banned its companies from importing Iranian oil or investing in Iran, but it would feel the pain of higher oil prices. ?If the price of oil has to go up then that?s a consequence we would have to suffer,? said Republican Senator John McCain of Arizona.

Peg MACKEY

FORMAL REFERRAL

Iran scorns EU trio?s draft nuclear resolution

■ EU powers began circulating a draft resolution on Wednesday for a Feb. 2 meeting of the UN nuclear watchdog asking it to report Iran to the Security Council, but Russia was seeking moves that stopped short of a formal referral. The EU draft resolution drew scorn from Iran?s President Mahmoud Ahmadinejad. The governing board of the International Atomic Energy Agency will hold an emergency meeting that day on Iran?s nuclear work at the request of European Union powers, an IAEA spokesman said. France, Britain, Germany and the United States are expected to push to have Tehran referred to the UN Security Council after it resumed research that could be used for generating electricity or making atomic bombs. But EU foreign policy chief Javier Solana said European states were considering a Russian proposal that could delay a formal referral of Iran to the council. Speaking to reporters during a visit to Washington, Solana said Russia had suggested the IAEA emergency meeting should call for a special UN Security Council session to debate Iran?s case, but that there be no formal referral to the council at that time. He acknowledged ?We?re talking to the Russians? about the proposal, which would have the Iran case return to IAEA jurisdiction after the Security Council debate. But he said there were many unanswered questions and no decision. Iran slammed the European draft resolution.

Louis CHARBONNEAU